CFPB's Rebuttal Presumption Invites Lawsuits

The mortgage industry will be saddled with high legal costs if the Consumer Financial Protection Bureau (CFPB) provides a low bar for attorneys to challenge a lender’s adherence to the bureau’s “ability to repay” underwriting standards, according to the Consumer Mortgage Coalition (CMC),which represents some of the nation’s largest banks.

If the CFPB adopts a “rebuttable presumption” legal standard as part of the qualified mortgage (QM) rule, it will provide an incentive for consumer attorneys to delay or stop foreclosures, the industry group says in a new letter to the CFPB.

“In fact, once the ‘ability to pay’ rule is in force, it might constitute malpractice for a consumer attorney not to at least attempt to bring such a claim,” CMC says in its recent comment letter.

Bureau officials are working toward issuing a final QM rule by the end of the June.

Adopting a “safe harbor” legal standard would give lenders a chance to defeat non-meritorious lawsuits early in the process, said CMC executive director Anne Canfield.

Without a safe harbor, even meritless lawsuits are “likely to cost lenders and investors tens of thousands of dollars to defend or settle.”

Lenders will resort to credit overlays to stay well within the QM credit boundaries. Access to mortgage credit will remain tight if a rebuttable presumption becomes the national standard, the group believes.

“Borrowers with modest credit blemishes, lower financial reserves, or nontraditional income sources (e.g., tips, boarder income and even self-employed) will be hardest hit,” CMC says.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.